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1、 See the important disclosures and analyst certifications on pages 24 if the economy is “under-heating”, the central bank can loosen financial conditions, and thereby buoy activity and the inflation rate, by cutting the policy rate. But whereas the central bank can hike the overnight interest rate a
2、s high as it likes to quell inflation, there is a limit to how far it can cut the policy rate to stimulate activity: zero. But the existence of a zero interest bound does not mean that the central bank has reached the limit of its ability to ease financial conditions. In the same way that it can rai
3、se the interest rate without limit in an attempt to tighten financial conditions, a central bank can purchase assets without limit, paying for those assets by creating bank reserves (deposit liabilities of the central bank), in an attempt to ease financial conditions. How does such QE ease financial
4、 conditions? It does so by altering the aggregate portfolio of financial assets held by the private sector, and does so in the direction of making it more liquid, less risky and lower yielding, and hence starts off a process where individual investors seek more duration, risk and yield in their port
5、folios. That is a far cry from some of the outlandish claims that are made about QE. One is that QE involves the central bank (irresponsibly) “printing money” or dropping “helicopter money”. True, the Fed and other quantitative easing central banks pay for the assets they acquire by electronically c
6、reating reserve money; but this is best thought of as a central bank-engineered asset swap with the private sector. The money held on deposit by banks at the central bank is not new purchasing power conjured out of thin air by the central bank and thrust into the hands of the public; rather it is is
7、sued in exchange, at market prices, for the assets acquired, one asset on the banking systems balance sheet being replaced by another (more liquid) one. Many fear that ultimately this “money printing” must lead to runaway inflation isnt that the lesson of history? Not so fast. When central banks tar
8、get price stability, they do so from above (resisting high inflation) and, if needs be, from below (fighting deflation). The Feds determination to meet its inflation “target” from below should increase, not decrease, confidence in its resolve to meet it from above (that is, fight inflation) when the
9、 time comes. To cite QE as evidence that the Fed will tolerate above-target inflation is to gloriously miss the point. If some market prices incorporate that misunderstanding, a money-making opportunity presents itself. Another canard is that the Feds QE is causing commodity price inflation globally
10、, and therefore back into the US, by weakening the dollar. This argument misunderstands that a weaker dollar is part and parcel of the desirable easing of financial conditions that QE aims to bring about although whether it does or not is entirely determined by the market and confuses commodity pric
11、es being quoted (or denominated) in US dollars, which is true, with their being determined in US dollars, which is only partly true. But that subject deserves separate treatment. For now, let us just note that pilots deserve some measure of trust and that flying airplanes and debating how to do so i
12、s best left to them. Nomura Global Economics 3 Asia Economic Weekly May 13, 2011 Taiwan Feature Article Tomo Kinoshita Feature Articles Taiwan: Slower but robust growth Despite the near-term challenges facing Taiwans economy, we expect its sound economic fundamentals and proactive policies to delive
13、r robust growth. Taiwans economy had a good start this year as, according to the governments preliminary estimates, real GDP growth in Q1 slowed to only 6.2% y-o-y from 6.9% in Q4, despite the high comparison base last year. The economy actually gained momentum in Q1 on a sequential basis as the sea
14、sonally adjusted annualised quarter-on-quarter growth rate accelerated to 13.4% from 0% in Q4, driven by strong growth in private consumption and exports. Short-term challenges However, in the short term, we believe the Taiwanese economy will face four challenges. First, the after-effects of Japans
15、earthquake are likely to hit industrial production in the short run, especially automobile production through supply disruption. Japanese auto manufacturers (JAMs), including their joint-venture companies, collectively account for 84.1% of auto production in Taiwan (see Asia: Risk of a short-term pr
16、oduction slowdown, 21 April, for details). Since mid-April, some JAMs have reduced their operating ratio by 50-70% with a full production recovery expected only in Q4. We think this is likely to lower GDP growth by 0.2 percentage points in 2011. Second, we expect CPI inflation to rise modestly to reach 3.6% in Q4 from 1.3% in Q1, as a result of higher prices of imported commodities as well as goods imported from China. In fact, inflation momentum data for CPI, CPI cor
